Egypt's military leaders met in an emergency session as their deadline for ending the nation's political crisis loomed, a showdown that could drive President Mohamed Mursi from power even as he vowed to defend his office with his life.

The July 1 ultimatum gave Mursi 48 hours to end the turmoil roiling Egypt or have a solution imposed by the military. The deadline was set to expire at 5 p.m. Cairo time, state television reported, hours after the Islamist leader rejected opponents' demands he resign.

Mursi's defiance prompted a swift response from the military, which stated it was ready to sacrifice itself in the fight against "fools."

The showdown is pitting the country's first democratically elected president against detractors who claim he's sold out the goals of the 2011 uprising against Hosni Mubarak to advance Islamist interests. Clashes between his supporters and critics left at least 18 dead and 619 wounded over the past 24 hours, said Ahmed El-Ansari, deputy head of the national ambulance service.

"If the price of safeguarding legitimacy is my own blood, I am ready to sacrifice it," Mursi said in a late night televised speech yesterday. "There is no alternative to constitutional legitimacy."

David Fuller's view In media jargon, this is a breaking story, so we can expect more short-term developments today. For instance, this next comment arrived in London at 2:42pm:

July 3 (Bloomberg) -- Proposed govt to stay until parliamentary elections that would be held within a few months, Egypt presidency says in an e-mailed statement.

* Alternative scenarios that some are trying to "impose on the Egyptian people" will confuse the process of building state institutions, presidency says

* Those who think Egypt could be dragged backward, and constitutional and revolutionary legitimacy undermined are mistaken, presidency says

* NOTE: Egypt's military on July 1 issued a 48-hour deadline for Mursi to either end the country's current political crisis or face a solution imposed by the army

Yesterday, I asked a Middle East specialist, Graham E Fuller, what he though of the Egyptian situation:

"I do not know, but expect some kind of perhaps new broader coalition under light military supervision.

"In my view it is important that the Muslim Brotherhood, not a really radical outfit, be given a chance to fail -- or succeed. If it fails in the public eye, that is a big setback to the allure of an Islamist party (there are many types around, including Turkey) in Egypt.

"However, if parties and groups seek to remove the reasonably legitimately elected MB by extra-legal means -- rioting, assaults on govt and MB institutions -- then the whole process is a farce. There are lots of old Mubarak loyalists and old security types and military generals who are helping stoke the public conflict, along with real grievances that the new govt hasn't really met the challenges -- which are huge. So telling Morsi that the military will intervene if the rioting doesn't stop is a total invitation to the rioters to continue. And Morsi, with very little experience, has a steep learning curve and has got to listen better and get some more effective technocrats in around him. (There are some there already.)

"Just bringing the military back in to establish order essentially deletes any political progress made and you're just back with a new Mubarak and the public won't learn their lesson either of how to participate better. It's really tough to get some sort of democracy working on the heels of decades of authoritarian rule, anywhere. A whole lot of learning for Egyptians -- sophisticated people but who have never in previous history had an elected president.

"We're going to have to go through this process around most of the world in one way or another. No short cuts."

I think this is a realistic summary, although protesters on the street have been saying that, in addition to the Mursi government being incompetent, it is only trying to help the Muslim brotherhood.

Meanwhile, some global investors and speculators are hedging against a 'worst case' civil war in Egypt. One of their main hedges is the purchase of crude oil futures such as WTI (weekly & daily) and Brent (weekly & daily). The former has significantly reduced its discount to Brent in recent weeks and reached its highest price since May 2012 by pushing above the psychological $100 level. The Brent contract is more subdued but is testing the upper side of the small range evident since the late-April low.

The outside risk is that a civil war in Egypt, which controls the important Suez Canal, could result in a temporary upward spike in oil prices, to the detriment of the global economy. Meanwhile, all rational sides within Egypt will presumably try to avoid a serious conflict. However, when opposing emotions run high in a troubled country, there is a risk that events can spiral out of control.

Lastly, the supply/demand fundamentals for crude oil suggest that lower prices are likely once the Egyptian crisis subsides. This would be indicated by downward dynamics on the price charts shown above.

Here are two related articles which came from Bloomberg while I was writing: Mursi Refuses to Quit, Offers Consensus Govt as Deadline Ends - and - More Egypt Bloodshed Inevitable, Former U.S. Aide Says.